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FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995
Commission File Number 1-7708
MARLTON TECHNOLOGIES, INC.
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(Name of small business issuer as specified in its charter)
New Jersey 1825970
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(State of incorporation) (IRS Employer Identification No.)
2828 Charter Road, Suite 101, Philadelphia, Pa 19154
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number, including area code: (215) 676-6900
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class: Name of each exchange:
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Common Stock, $.10 par value American Stock Exchange
Securities registered pursuant to Section 12(g) of the Exchange Act: None
Check whether the Issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter periods that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes __X__ No _____
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form and no disclosure will be contained, to
the best of Issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB. __X__
Issuer's revenues for its most recent fiscal year: $27,671,763
The aggregate market value of the voting stock held by non-affiliates of the
issuer at March 22, 1996 was $5,964,250. As of March 22, 1996, there were
4,442,534 shares of Common Stock, $.10 par value, of the Issuer outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: The following materials contained in the
following documents are hereby incorporated by reference into this Form 10-KSB.
(i) Information from the Issuer's definitive proxy statement for the 1996
Annual Meeting of Shareholders, involving the election of directors, has
been incorporated by reference in Part III - Items 9, 10, 11 and 12.
(ii) Information from the Issuer's Registration Statement on Form S-8, File No.
33-3647, has been incorporated by reference in Part III - Item
13(a)(3)(i)(a).
Transitional Small Business Disclosure Format Yes_____ No __X__
Exhibit Index Appears on Page ____ Page 1 of ____
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
Business Development
Marlton Technologies, Inc. (the "Issuer" or "Company") was incorporated as a New
Jersey corporation in 1966. The Issuer's business related to computerized
electronic telecommunication systems until 1988, when it sold substantially all
of its operating assets.
On August 7, 1990, the Issuer acquired the business of Sparks Exhibits Corp.
("Sparks"). Sparks custom designs and manufactures sophisticated trade show
exhibits, displays, architectural and museum interiors, graphics and signage,
provides trade show services and designs and sells portable exhibits. In the
fourth quarter of 1990, the Issuer acquired the accounts and assets of the trade
exhibit division of a competitor and also established a portable exhibits group.
The Issuer subsequently formed (i) Sparks Exhibits, Inc. ("Exhibits") in July
1991 in the Atlanta, Georgia area, (ii) Sparks Exhibits, Ltd. ("Limited") in
July 1992 in the San Diego, California area, and (iii) Sparks Exhibits
Incorporated ("Incorporated") in December 1992 in the Orlando, Florida area, in
each case by acquiring the assets of trade show exhibit manufacturing companies.
In August 1993, the rights and related business assets to a panelized portable
trade show exhibit owned by Limited were transferred to a 51% Issuer-owned
subsidiary, Expose Display Systems, Inc. ("EDSI"), with the manufacturing and
distribution facilities moved to Los Angeles, California during March 1994.
Currently all of the Issuer's operating revenues are derived from Sparks,
Exhibits, Limited, Incorporated (collectively, the "Sparks Companies") and EDSI.
Business of Issuer
Products and Services:
The Sparks Companies custom design and manufacture sophisticated trade show
exhibits, displays, architectural and museum interiors, graphics and signage,
provide trade show services, and sell portable exhibits, and EDSI produces and
distributes a line of panelized portable exhibits. Clients include industry,
government, healthcare, telecommunications, consumer electronics, athletic
goods, and other specialized fields. Graphics and industrial designers develop
and manage custom design requirements from concept through final construction,
employing sophisticated computer aided design software and hardware. Complete
graphics facilities provide full in-house dark room capabilities, silkscreening,
and state of the art computerized design/graphics. Electronics and audiovisual
capabilities include on-staff electronic specialists, consultants, and vendor
relationships which provide multi-media equipment and programs, fiber-optic
technology, laser disk video interactive program production, video and computer
games, simulators, and customized software and hardware applications. The Sparks
Companies are full service exhibit houses, providing show service coordination,
freight coordination, refurbishing, storage and marketing literature
distribution. Many clients are Fortune 1000 firms, who typically contract for
custom trade show exhibit projects in excess of $100,000. Additionally, a
majority of these clients store their exhibits at a Sparks Company facility,
where ongoing refurbishing and coordination of clients' trade show schedules are
administered. The Sparks Companies also represent domestic clients who desire to
exhibit at international trade shows. The Sparks Companies design such exhibits,
and, through an international network of independent trade exhibit
manufacturers, arrange for the manufacture and delivery of trade exhibits to the
desired trade show. The Sparks Companies also design and manufacture trade show
exhibits for a number of United States subsidiaries of foreign corporations, for
use in domestic trade shows. In 1992, Limited began to produce and distribute
panelized portable exhibits known as "Expos", through a network of
predominantly U.S. portable exhibit dealers, including the Sparks Companies and
unaffiliated dealers. Since August 1993, EDSI has assumed responsibility for
this portable exhibit production and distribution.
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Business of Issuer - (continued)
Marketing and Distribution:
Sales to domestic customers for both domestic and foreign trade shows are
solicited primarily through the Sparks Companies' internal marketing groups.
Purchase of custom trade exhibit products usually involves a substantial dollar
commitment by the customer as significant design and development may be required
to properly meet the customer's needs. Sales personnel are required to be
knowledgeable with respect to the design and development of trade show exhibit
products as well as complying with internal profitability requirements. In
addition to the sales personnel, senior officers devote substantial time and
effort to sales and marketing activities. EDSI's panelized portable exhibits are
marketed by EDSI's minority shareholder, Abex Display Systems, Inc. ("ADSI"), to
retail portable exhibit dealers by direct solicitation, media advertising and
participation in trade shows for the portable exhibit industry.
Manufacturing and Raw Materials:
The Sparks Companies design, develop and manufacture custom trade show exhibits
utilizing an in-house staff of designers, carpenters, electricians and
warehousemen. Specialty items such as steel work and studio production are
subcontracted. The Sparks Companies also subcontract the manufacture of exhibits
for foreign trade shows. The Sparks Companies coordinate shipping, exhibit
set-up and removal at the customer's trade show and, in most cases, subsequently
store the exhibit for the customer. Raw materials for custom and portable
exhibits, as well as subcontractor work, are readily available from various
vendors. Patents, trademarks and licenses are not important to operations. The
Philadelphia operations are the only unionized facility, with a three-year labor
contract expiring June 30, 1998. Portable exhibit configurations, together with
graphics and signage, are typically designed by the Sparks Companies for a
client. Portable exhibits are produced by EDSI, in the case of Expose, or are
purchased from manufacturers for resale. Graphics and signage may be produced
internally or subcontracted. Geographic distribution rights are typically
granted by portable exhibit manufacturers based on annual sales volume levels.
The Sparks Companies have obtained such distribution rights from their primary
sources of portable exhibits, and other portable exhibit dealers have been
granted such distribution rights with regard to Expose. Amounts spent by EDSI
during each of the last two years on the development of new products, including
the required machinery, equipment and tooling to manufacture and produce the
products approximates $144,000 and $104,000 during 1994 and 1995, respectively.
Additional expenditures of approximately $150,000 will be spent by EDSI during
1996 for the continued development of a new product introduced during the first
quarter of 1996. Other than previously described, the Company made no material
disbursements during each of the last three fiscal years for research and
development activities.
Seasonality of Business:
Trade shows traditionally occur regularly throughout the year with the exception
of the third quarter when business to business trade shows are historically at a
low point. The Sparks Companies' business has also been of a seasonal nature due
to the fact that trade show activities in specific industries, such as health
care and telecommunications, are a function of the seasonal show schedules in
such industries. The Sparks Companies have embarked on a program to seek new
clients and sales people with client bases in different industries to reduce the
effects of the slower sales period. Additionally, the Sparks Companies are
developing other products and services, such as sales of portable exhibits and
permanent displays and distribution of marketing literature, which are less
seasonal in nature.
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Business of Issuer - (continued)
Working Capital:
The Sparks Companies' and EDSI's working capital requirements are fulfilled by
funds generated through operations, bank term loans and revolving credit
facilities. Working capital requirements are not affected by project size
requirements or accelerated delivery for major customers due to general policies
of progress billing on larger jobs. Additionally, the Sparks Companies and EDSI
do not require continuous allotments of raw materials from suppliers and do not
generally provide extended payment terms to customers other than lease and
purchase arrangements with credit-worthy customers, not exceeding terms of three
years.
Significant Customers:
During 1995 and 1994, no individual customer accounted for at least 10% of
consolidated net sales.
Backlog:
The Sparks Companies' and EDSI's backlog of orders at December 31, 1995, and
1994 was approximately $6,200,000 and $6,100,000, respectively. The entire
current backlog relates to expected 1996 sales. The Sparks Companies maintain a
client base from which new orders are continually generated, including
refurbishing of existing exhibits stored in Sparks Companies' facilities. There
are also a significant amount of proposals outstanding with current and
prospective clients. Sales routinely occur during the period immediately
preceding customer trade shows.
Competition:
The Sparks Companies compete with other companies designing and manufacturing
similar products and providing similar services on the basis of price, quality,
performance and client-support services. The custom trade show exhibit and
museum manufacturing market and portable exhibits sales market include a large
number of national and regional companies, some of which have substantially
greater sales and resources than the Sparks Companies. In addition to their
Philadelphia, Atlanta, San Diego and Orlando manufacturing facilities, the
Sparks Companies utilize their national and international affiliations and
relationships to meet customers needs in other geographic areas. EDSI competes
primarily with other manufacturers of portable exhibits, some of which have
substantially greater operating histories, sales and resources than EDSI. Due to
the lack of specific public information, the Sparks Companies' and EDSI's
competitive position are difficult to ascertain.
Environmental Protection:
The Sparks Companies' and EDSI's compliance with Federal, state and local
provisions regulating discharge of materials into the environment or otherwise
relating to the protection of the environment has not had and is not expected to
have a material effect upon their capital expenditures, earnings, and
competitive position.
Employees:
The total number of persons employed by the Issuer is approximately 200 of which
195 are full-time employees.
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ITEM 2. DESCRIPTION OF PROPERTY
The Issuer currently leases seven facilities as follows:
<TABLE>
<CAPTION>
Location Square Footage Purpose
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<S> <C>
Philadelphia, PA 235,000 Office, showroom, warehouse & manufacturing
Austell, GA 81,000 Office, showroom, warehouse & manufacturing
El Cajon, CA 53,500 Office, showroom, warehouse & manufacturing
Melbourne, FL 28,000 Office, warehouse & manufacturing
Harrisburg, PA 2,500 Portable exhibits office & showroom
Wayne, NJ 1,100 Portable exhibits office & showroom
Huntington Beach, CA 500 Custom exhibits sales office
</TABLE>
Additionally, EDSI operates within the minority shareholder's North Hollywood,
California facility.
The Sparks Companies' office, showroom, warehouse and manufacturing facilities
were all in good condition and adequate for 1995, based on normal five-day
operations, and are adequate for 1996 operations, including any foreseeable
internal growth. The Issuer does not anticipate any difficulty in acquiring
additional space, if necessary.
ITEM 3 LEGAL PROCEEDINGS
The Issuer is not involved in any material pending legal proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted during the fourth quarter of 1995 to a vote of
security holders.
PART II
ITEM 5 MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The following table shows the high and low sales prices of the Common Stock, par
value $.10 per share, of the Issuer on its principal market, the American Stock
Exchange:
1995 1994
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Quarter High Low High Low
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1 $1-1/8 $ 7/8 $1-3/4 $1-1/8
2 2-1/8 1 1-1/2 1
3 2 1-1/2 1-1/4 13/16
4 1-3/4 1-3/16 1-1/8 7/8
No dividends were paid during the past two fiscal years. The Issuer currently
intends to employ all available funds in the business. Future dividend policy
will be determined in accordance with the financial requirements of the
business. Sparks' bank loan agreements provide that Sparks cannot distribute to
the Issuer funds other than (i) an amount equal to the estimated tax benefit
realized from utilization of the Issuer's net operating losses, and (ii) a
management fee. Unless waived, these restrictions will limit the Issuer's
ability to pay dividends.
As of March 22, 1996, there were 1,160 holders of record of the Issuer's Common
Stock.
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ITEM 6 MANAGEMENT'S DISCUSSION AND ANALYSIS
General Overview
On August 7, 1990, Marlton Technologies, Inc. (the "Company") acquired the
current business of Sparks Exhibits Corp. ("Sparks"), as described in Note 2 of
the consolidated financial statements. Through this acquisition, the Company's
core business became the custom design, manufacture and sale of sophisticated
trade show exhibits, displays, signage and graphics for clients in industry,
government, consumer electronics, athletic goods, healthcare, telecommunications
and other specialized fields.
During the fourth quarter of 1990, Sparks purchased certain assets, principally
customer lists, from DCA, Inc., a custom trade exhibit business. Additionally,
Sparks formed a portable exhibits group, which distributes affiliated and
non-affiliated manufacturers' portable exhibit products, in an effort to expand
its market to include both high-end (custom exhibits) and lower price point
(portable exhibits) products. During July 1991, a wholly-owned subsidiary of
Sparks, Sparks Exhibits, Inc. ("Exhibits") acquired assets from two unrelated
custom exhibit businesses in suburban Atlanta, Georgia.
During 1992 the Company, through two newly-formed wholly-owned subsidiaries,
Sparks Exhibits, Ltd. ("Limited") and Sparks Exhibits Incorporated
("Incorporated"), acquired assets, respectively, from a custom and portable
exhibit manufacturing business in suburban San Diego, California and a custom
exhibit business in Melbourne, Florida (Note 2).
During July 1993, the Company and an unrelated portable exhibit manufacturer,
Abex Display Systems, Inc. ("ADSI"), entered into an agreement to organize a new
corporation, Expose Display Systems, Inc. ("EDSI") to manufacture and market the
Company's proprietary panelized portable exhibit - Expose - through ADSI's
worldwide distribution network.
During March 1995, the Company and a Japan-based diversified manufacturing and
marketing company, Tsubasa System Company Ltd. ("Tsubasa") entered into an
agreement to organize a new Japanese corporation, Sparks Exhibits Japan ("SEJ"),
and grant exclusive Japan distribution rights to SEJ for the Company's portable
exhibits products and technology and to license the name and logo of "Sparks
Exhibits" in Japan. See Note 15 of the consolidated financial statements.
The benefits of management's aggressive growth plan, since the August 1990
acquisition of Sparks, has resulted in the dramatic expansion of the Company's
client base, the development of new business groups for expansion of its
products and services, and the extension into major geographic markets of the
United States and internationally. Management believes the acquisitions and the
continuing development of the new business groups will position the Company to
increase its revenue base through the continued offering of expanded products
and services to a larger customer network.
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RESULTS OF OPERATIONS
1995 As Compared With 1994
Sales
Revenues for 1995 of $27,672,000 the highest annual revenues in
post-reorganization history, represents a 12.4% increase over 1994 revenues of
$24,613,000. The $3.0 million 1995 increase over 1994 was attributed to sales
increases from all business groups.
1995 1994
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Custom exhibits group $17,296,000 $16,155,000
Portable exhibit group 3,179,000 3,001,000
Museum and productions group 2,816,000 1,936,000
International group 2,252,000 1,857,000
Expose, net of intercompany sales 2,129,000 1,664,000
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Total revenues $27,672,000 $24,613,000
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The Company is encouraged by continued revenue growth from all of its business
segments during 1995 as compared with 1994. The largest percentage increases in
1995 revenues as compared with 1994 revenues were experienced by the museum and
production group, the Expose joint venture and the international group - 45%,
28% and 21%, respectively. 1995 sales from the custom exhibit group and the
portable exhibit group increased over 1994 sales by approximately 7% and 6%,
respectively. The dramatic 1995 percentage increases experienced in the museum
and productions group, the international group and the Expose joint venture are
results of these business groups start-up growth and the Company's investments
and marketing efforts since 1993. The respective 7% and 6% increases experienced
during 1995 by the Company's core business in custom exhibits and the portable
exhibit group reflects the impact of lower marketing budgets of Fortune 1000
customers which were offset by the Company's client-base expansion during 1995.
This client-base expansion should contribute to future sales growth as marketing
budgets are expanded.
Operating Profits
The Company experienced a 40% increase in 1995 operating profits as compared
with 1994 operating profits. The 1995 operating profit increase is attributed to
the following areas.
* A significant 1995 increase of $1.3 million revenues from the museum
and production group and the international group over 1994 revenues
assisted in increasing the operating profits of the facilities in
Atlanta, San Diego and Melbourne, Florida, with San Diego experiencing
the largest 1995 sales percentage increase over 1994 sales, 85%. Total
sales revenues for the three facilities during 1995 approximated $9.5
million as compared with $6.0 million during 1994, a 58% increase. The
Philadelphia location, however, experienced a 1995 revenue shortfall
of $1.1 million as compared with 1994 revenues. This decrease is
primarily a result of work transferred from the Philadelphia location
to the Atlanta and Florida facilities during 1995. However, the
Philadelphia location's operating profits increased by virture of
fixed cost controls and the higher gross margins achieved on its
overall sales volume. The gross profit percentage increased from 27.9%
to 28.8% during 1995. This increase is attributed to overall operating
efficiencies and absorption of fixed overhead costs realized by all
locations from the higher sales volume as well as a significantly
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Operating Profits (continued)
higher contribution from EDSI during 1995. Selling and administrative
costs, as a percentage of overall sales, increased marginally, by
1/2%, during 1995 as compared with 1994. This increase is primarily
due to the Company's continuing marketing investments in the Expose
business group
* Revenues from the Expose business group increased approximately
$465,000 during 1995 which contributed to a significant increase in
operating profits. While 1994 sales levels were sufficient to absorb
the fixed overhead, selling and administrative costs incurred during
that year, they were only sufficient to generate a marginal operating
profit during 1994. However, the higher 1995 sales levels were
sufficient to absorb higher 1995 fixed, selling and administrative
costs and to generate significantly higher operating profits during
1995. Additionally, the reduction of direct costs related to the main
component of the Expose product positively impacted this group's
operating margins during 1995.
* The portable exhibit sales group experienced a modest 6% sales
increase during 1995 as compared with 1994. However, this business
group increased its selling and administrative support costs during
1995 to meet the demand for customized exhibits utilizing standard
portable exhibit components. The effect of the increased overhead
during 1995 within the portable exhibit group reduced 1995 operating
profits as compared with 1994.
Other Income (Expense)
Other income decreased by approximately $173,000 during 1995 as compared with
1994. This decrease is predominantly attributed to the $250,000 gain the Company
recorded during the first quarter of 1994 in connection with an insurance
settlement for certain claims. See Note 3 to the consolidated financial
statements.
Interest income during 1994 is net of principal declines for cash and cash
equivalent investments in certain U.S. government and liquid bond funds.
Interest income during 1995 did not include any principal declines. As a result,
interest income during 1995 was approximately $81,000 higher when compared to
1994.
Interest expense decreased marginally during 1995 when compared to 1994. Other
income decreased during 1995 as compared with 1994 primarily due to recording
the minority interest in EDSI's 1995 profit of $42,256 as compared with the 1994
loss of $16,837. Also included in other income is a $33,367 gain recorded during
1995 by the Company on the sale of a stock investment previously written off.
Income Taxes
The Company recorded an income tax benefit of approximately $538,000 during
1995, net of an income tax provision for current federal, state and local taxes
approximating $66,000. This deferred income tax benefit is due to the release of
valuation allowances based on the Company's current evaluation of the future
utilization of its net operating loss carryforward. During 1994, the effect of
releasing the valuation allowances was to generate a tax provision approximating
28% of income before incomes taxes. See Note 14 to the consolidated financial
statements.
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Net Income
Net income for 1995 increased to $1,252,814 ($.32 per share) as compared with
1994 net income of $486,794 ($.14 per share). A substantial portion of 1995 net
income is attributable to the $538,000 ($.14 per share) net income tax benefit
as a result of the releasing of valuation allowances, more fully described
above. Additionally, during 1994, net income of $486,794 included a $250,000
($180,000 net of income taxes; $.05 per share) gain from an insurance
settlement. Net income, during 1994, exclusive of the insurance gain was
$306,794 ($.08 per share) as compared with 1995 net income of $514,667 ($.13 per
share), utilizing a comparative income tax provision rate of 28%, as utilized
during 1994. Comparatively, 1995 net income increased approximately 68% over
1994.
Backlog
The Company's backlog of orders at December 31, 1995 was approximately $6.2
million as compared with $6.1 million at December 31, 1994. The Company hired
several new, experienced sales executives with significant client-bases during
the fourth quarter 1995, however, the Company's backlog of orders of $6.2
million did not include unconfirmed sales from these new sales executives as of
December 31, 1995. Subsequent to December 31, 1995, a significant backlog of
orders were confirmed from these new sales executives. See "Outlook" section for
further discussion.
1994 As Compared With 1993
Sales
Revenues for 1994, approximately $24.6 million, exceeded revenues from 1993 of
$19.2 million by approximately 28%. The $5.4 million 1994 increase over 1993 was
primarily attributed to sales increases from all business groups.
Revenue Category 1994 1993
---------------- ---- ----
Custom exhibit group $16,155,000 $13,614,000
Portable exhibit group 3,001,000 2,622,000
Museum and productions group 1,936,000 608,000
International group 1,857,000 1,616,000
Expose, net of intercompany sales 1,664,000 712,000
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Total revenues $24,613,000 $19,172,000
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The Company experienced significant 1994 increases in all revenue categories
compared with 1993. The portables group and international group increased their
annual sales volume by 14.5% and 15%, respectively, during 1994 as compared with
1993. The custom exhibit revenues increased during 1994 over 1993 by 19%,
primarily due to the marketing efforts and investments made during 1993.
The acquired locations of Atlanta, San Diego and Florida increased 1994 revenues
over 1993 revenues by 23%, excluding the sales volume contributed to those
locations by the international and the museum and productions group. During
1994, as compared with 1993, there was a 134% increase in Expose revenues, net
of intercompany sales. This increase was a direct result of the July 1993
decision to organize a new, 51% owned company, EDSI and take advantage of an
established portable exhibit distribution network developed and maintained by
the minority interest company, ADSI.
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Sales (continued)
The museum and productions group increased its annual sales from approximately
$608,000 during 1993 to $1,936,000 in 1994, a 218% increase. This increase was a
result of the marketing efforts and investments made by the Company during 1993.
Operating Profits
The Company experienced a $719,000 increase in 1994 operating profits as
compared with a 1993 operating loss; this 1994 operating profit increase is
attributed to the following areas:
* A significant increase in 1994 revenues of approximately $3.8 million
from the museum and productions group and the international group, as
compared with $2.2 million from 1993, was critical in increasing the
sales volume and efficiencies of the Philadelphia, Atlanta and San
Diego operations. Additionally, the San Diego operation doubled its
other sales volume to $1.4 million during 1994 as compared with 1993,
providing a significant operating profit increase during 1994 over
1993 for that location. The gross profit percentage decreased during
1994, as compared with 1993, by less than one percent, primarily due
to the lower margins of the museums and productions group. The
longer-term museum and production projects are traditionally priced at
lower margins due to the competitive nature of securing this work.
Management has made the decision to continue pursuing this lower
margin work to improve the overall efficiencies of the various
manufacturing operations. The additional revenues from the museum and
productions group, the international group and higher revenues from
the existing client base resulted in increased overall operating
efficiencies and absorption of fixed overhead costs in all locations,
significantly increasing operating profits, both as a percentage of
revenues and in real dollars. Selling and administrative expenses, as
a percentage of sales, each dropped by 2% during 1994 as compared with
1993.
* While revenues from sales related to the Expose portable exhibits
product line increased by $950,000 during 1994 as compared with 1993,
only a marginal operating profit was generated as compared to an
operating loss during 1993. While the increased revenues assist in
absorption of fixed overhead, selling and administrative costs, 1994
sales levels of the Expose product achieved a level to offset the
higher costs to support the national distribution network but did not
reach levels to contribute to higher operating profits.
* The portables sales group experienced a 14.5% increase in revenues
during 1994 as compared with 1993. This additional sales volume, while
maintaining gross profit levels and administrative cost levels, and
simultaneously reducing selling costs, positively impacted operating
profits during 1994 by approximately $172,000.
Other Income (Expense)
Other income increased by approximately $175,000 during 1994 as compared with
1993. The increase was attributed to a $250,000 gain during the first quarter of
1994 in connection with an insurance settlement for replacement value claims
arising from the November 1993 fire in the Company's Melbourne, Florida
facility.
Interest income was net of recorded principal declines for cash and cash
equivalent investments in certain U.S. government and preferred stock funds
during 1994. Accordingly, interest income during 1994 was approximately $72,000
less when compared with 1993.
Interest expense was reduced by approximately $35,000 during 1994 as compared
with 1993. The decrease was due to the elimination of interest to the sellers of
Sparks with respect to notes which were retired during the third quarter of 1993
and significantly improved cash flow from operations which reduced the Company's
need to draw against its revolving credit facility.
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Income Taxes and Cumulative Effect of Accounting Change
The provision for income taxes, as a percentage of income before taxes,
decreased to 28% as compared with 40% during 1993. The reduction was due to the
release of $91,000 of valuation allowances based on management's evaluation of
the future utilization of the Company's net operating loss carryforward. During
the first quarter of 1993, the Company adopted Statement of Financial Accounting
Standards (SFAS) No. 109, resulting in a one-time, non-cash benefit to 1993
earnings of $1.5 million, as more fully described in Note 1 to the consolidated
financial statements.
Net Income
Net income decreased from $1,271,382 ($.33 per share) to $486,794 ($.13 per
share) during 1993 as compared with 1994, respectively. The decrease was
predominantly attributable to the 1993 change in accounting for income taxes and
an extraordinary charge to earnings relative to early debt retirement (Notes 1
and 2, respectively). Exclusive of the $250,000 gain ($180,000, net of income
taxes) from replacement value insurance, the Company's 1994 income was
approximately $307,000 ($.08 per share) as compared with a loss of approximately
$133,000 ($.03 per share) during 1993, exclusive of the impact from SFAS No. 109
and the extraordinary charge.
LIQUIDITY AND CAPITAL RESOURCES
During 1995, the Company's cash reserves decreased by $440,569, from $1,469,175
to $1,028,606.
Customer payments for progress billings related to production in process
decreased significantly from $2,014,000 at December 31, 1994 to $857,000 at
December 31 1995, a $1,157,000 reduction. This reduction was due only to the
timing of the Company's progress billing and subsequent cash collection from
clients. Accordingly, the accounts payable and accrued expense balances
increased by approximately $350,000, exclusive of the $1,157,000 reduction in
customer deposits, as of December 31, 1995 as compared with December 31, 1994.
Inclusive of the current portion of long-term debt, the Company reduced its
current liability balances by more than $1.1 million, or 17%, as of December 31,
1995 when compared with December 31, 1994. This significant decrease in current
liabilities helped improve the Company's current ratio from 1.40 to 1 at
December 31, 1994 to 1.63 to 1 at December 31, 1995, a 16% improvement.
Inventory and accounts receivable balances increased by approximately $400,000
at December 31, 1995 as compared with the same date in 1994 predominantly due to
higher sales levels experienced during 1995. Prepaid and other current assets
decreased by approximately $300,000 at December 31, 1995 when compared with
December 31, 1994 primarily due to the first quarter 1995 collection of $250,000
in insurance proceeds (included in other current assets in 1994) and a $150,000
reduction in Company advances with respect to the funding of EDSI's working
capital requirements.
The Company's total debt to equity ratio improved by approximately 22% at
December 31, 1995, .61 to 1 as compared with .79 to 1 at December 31, 1994. This
improvement, coupled with the additional increase in shareholder's equity of
$1.75 million from the first quarter 1996 Tsubasa agreement (see Note 15 to the
consolidated financial statements) will increase the Company's ability to fund
future acquisitions without incurring significant debt.
During 1995, the Company expended approximately $890,000 for capital assets,
including $225,000 for machinery and equipment, $200,000 in leasehold
improvements, $175,000 for data processing equipment and $225,000 for rental and
showroom assets; the balance was disbursed for the acquisition of other assets.
During 1995, the Company temporarily borrowed up to $519,000 of its $1.25
million credit facility. All borrowings were repaid by the Company as of
December 31, 1995.
11
<PAGE>
Liquidity and Capital Resources (continued)
On August 7, 1995 the Company had scheduled payments of $812,590 for the
following items to the Sellers of Sparks:
* Demand note for 1993 and prior scheduled
contingent payments to Sellers $328,618
* 1994 contingent payment due
August 7, 1995 150,000
* Final, five-year excess contingent
payment due August 7, 1995 to Sellers,
included in goodwill 333,972
-------
Total due Sellers 812,590
* Company payment made August 7, 1995 528,713
-------
Balance due sellers of Sparks,
December 31, 1995 $283,877
========
The Company funded its August 7, 1995 Sellers payment through a $550,000 term
loan from a bank. See Note 10 to the consolidated financial statements. The
balance due to the Sellers of Sparks was made in the form of three two-year
balloon notes, bearing interest at 8% which is payable quarterly and is
convertible into the Company's common stock at price equal to $1.375 per share.
OUTLOOK
The increased sales volume during 1995 from all business groups contributed to
consistent operating efficiencies at the Company's four manufacturing facilities
and positively contributed to the higher operating margins realized during the
year.
The Company expects continued sales growth in all business groups during 1996 -
custom exhibits, museums and production, international sales, portable exhibits
and the majority owned Expose Display Systems, Inc. The Company's fourth
quarter 1996 hiring of several new, experienced sales executives with large
client bases, within industry's new to the Company, had signifiant impact on the
backlog of orders as of March 22, 1996, $7.62 million as compared with the March
22, 1995 backlog of orders of $4.79 million, a 60% increase. The expected
increase in 1996 revenues should generate higher operating profits as the
Company trys to maintain its historic gross profit percentage while not
significantly increasing its fixed operating costs.
Through December 1995, the Atlanta operation continued to perform below
expectations. The Company continues to seek the type of clients and sales
executives which, historically, have contributed to the success of the Company's
Philadelphia location. Management will continue to focus on building the Atlanta
operation's performance during 1996.
During 1995, the Company's San Diego operation continued to build on the
progress realized during 1994. The addition of experienced account executives
during 1994 provided positive trends in both revenue growth and operating
profits for the California operation. Company management anticipates additional
revenue growth from the San Diego location during 1996 while contributing to
higher levels of operating profits.
Management is currently seeking opportunities to expand the Company's influence
in the Orlando, Florida vicinity, which continues to grow as a trade show and
family entertainment destination.
12
<PAGE>
Outlook (continued)
Management anticipates additional revenue growth from EDSI during 1996, due to
the increasing acceptance of the Expose product by national and international
distributors as well as the February 1996 introduction of the Expose Laminate
System. The Company has made significant strides in reducing the direct costs
associated with the Expose product while maintaining the existing costs of
distribution and administration, as a percentage of revenues. By virtue of
increasing sales and maintaining 1995 gross profit margin levels from both
Expose products, the Company anticipates additional contributions to the
overall operating margins from EDSI during 1996.
Management is encouraged by the Company's overall performance during 1995 and
realizes certain areas require continued attention and resources, specifically,
building the Atlanta location and resultant contribution to the operating
profits of the Company. Additionally, the Company will continue to seek
experienced sales executives with an existing base of custom exhibit clients to
contribute additional sales volume to be spread among the Company's four
manufacturing facilities.
Management will continue to invest resources in the museum and production
business group and international sales group during 1996. These business groups
have experienced excellent sales growth since 1993 and are positioned to
increase sales volume, once again, during 1996. The Company has also
re-dedicated itself to the exhibit rental business, headquartered in the
Atlanta, Georgia facility, by hiring an experienced exhibit rental manager and
seasoned sales executive with a specialty in the exhibit rental marketplace. The
Company will develop a data system capable of monitoring inventory levels and
efficiently quoting exhibit rental alternatives to a growing segment of the
industry.
EDSI introduced the higher price point Expose Laminate System during February
1996. Sales and marketing collateral for the new product has been completed and
the Company is encouraged by the initial reaction from the national distribution
network to the new system.
The Company holds a 10% interest in Sparks Japan, a 1996 formed Japanese
corporation marketing portable and modular exhibits in Japan. In addition to the
Company's 10% equity interest in Sparks Japan, the Company should increase
revenues and profits from its 51% owned investment in EDSI, whose products will
be marketed through Sparks Japan. The February 1996 transaction with a
Japan-based manufacturing and marketing company (see Note 15), has significantly
improved the Company's already healthy balance sheet and increased stockholder's
equity by 17%. Historically, Japanese exhibitors have built and scrapped their
exhibits for each trade show. The portable, modular exhibits currently marketed
in the United States can provide a large assortment of design capabilities while
simultaneously offering reconfigurability and reusability for future trade
shows. These portable, modular products will also provide the Japanese exhibitor
an alternative to the environmentally-unfriendly practice of exhibit disposal.
The Company's balance sheet which includes good current and debt to equity
ratios as well as cash flow from operations, is postured to support growth and
investment in opportunities which could be translated into higher shareholder
value. By meeting the challenges outlined above, maintaining the highest
standards for product quality and customer service and aggressively seeking
acquisition possibilities within the exhibit industry which meet management's
financial and synergy requirements, the Company should be well-positioned to
meet future opportunities in the global marketplace for trade shows and
permanent exhibitry.
Management intends to dedicate resources to develop a definitive strategic
marketing plan and implement a professionally-managed investor relations program
to effectively communicate the Company's vision, expectations and performance.
Management's ultimate goal is to secure the investment community's support in
the Company's strategic objectives.
13
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
The financial statements, together with the report of the Company's independent
accountants thereon, are presented under Item 13 of this report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not Applicable
PART III
Items 9, 10, 11 and 12 have been omitted from this report, in accordance with
General Instruction E, since the Issuer will file with the Commission a
definitive proxy statement, involving the election of directors, pursuant to
Regulation 14A within 120 days after the close of its 1995 fiscal year.
Accordingly, relevant information contained in such definitive proxy statement
is incorporated herein by reference.
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K
Exhibit
Page
----
(a) The following documents are filed as part of this report:
Financial Statements:
Report of Independent Accountants
Consolidated Statements of Operations for the years
ended December 31, 1995, 1994 and 1993
Consolidated Balance Sheets, December 31, 1995 and 1994
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1995, 1994 and
1993
Consolidated Statements of Cash Flows for the years
ended December 31, 1995, 1994 and 1993
Notes to Consolidated Financial Statements
(3)(i)(a) Restated Certificate of Incorporation of the Issuer.
(Incorporated by reference to Exhibit 4(a) to the Issuer's
Registration Statement on Form S-8, File No. 33-3647, filed
with the Commission.)
(3)(i)(b) Certificate of Amendment to the Restated Certificate of
Incorporation of the Issuer filed on June 2, 1987.
(Incorporated by reference to Exhibit 3(a)(ii) to the
Issuer's Annual Report on Form 10-K for the year ended
December 31, 1987, filed with the Commission.)
14
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (continued)
Exhibit
Page
----
(3)(i)(c) Certificate of Amendment to the Restated Certificate of
Incorporation of the Issuer filed on January 14, 1988.
(Incorporated by reference to Exhibit 3(a)(iii) to the
Issuer's Annual Report on Form 10-K for the year ended
December 31, 1988, filed with the Commission.)
(iv) Certificate of Amendment to the Restated Certificate of
Incorporation of the Registrant filed on May 8, 1989.
(Incorporated by reference to Exhibit 3(a)(iv) to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989, filed with the Commission.)
3(b) Amended and Restated By-laws of the Registrant.
(Incorporated by Reference to Exhibit 3(b) to the
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1990, filed with the Commission.)
10(a) Agreement to Amend the International Distribution and
Technology Agreement with Tsubasa System Company, Ltd.
dated January 22, 1996.
10(b) Amended Agreement of Employment, dated December 11. 1992,
between the Registrant and Robert B. Ginsburg.
(Incorporated by reference to Exhibit 10(b) to the
Registrant's Annual Report of Form 10-K for the
year ended December 31, 1992 filed with the Commission).
10(c) Amended Agreement of Employment, dated December 11. 1992,
between the Registrant and Alan I. Goldberg.
(Incorporated by reference to Exhibit 10(b) to the
Registrant's Annual Report of Form 10-K for the
year ended December 31, 1992 filed with the Commission).
10(d) Option Agreement dated November 23, 1992 with Robert B.
Ginsburg. (Incorporated by reference to Exhibit 10(d)
to the Registrant's Annual Report of Form 10-K for the
year ended December 31, 1992 filed with the Commission.)
10(e) Option Agreement dated November 23, 1992 with Alan I.
Goldberg. (Incorporated by reference to Exhibit 10(d)
to the Registrant's Annual Report of Form 10-K for the
year ended December 31, 1992 filed with the Commission.)
10(f) Employment and Option Agreements dated as of January 1,
1994 between the Registrant and Edmond D. Costantini, Jr.
(Incorporated by reference to Exhibit 10(f) to the
Registrant's Annual Report of Form 10-K for the year
ended December 31, 1993 filed with the Commission.)
15
<PAGE>
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS AND REPORTS ON FORM 8-K (continued)
Exhibit
Page
----
10(g) Lease for Premises located at 2828 Charter Road,
Philadelphia, PA. (Incorporated by reference to Exhibit
10(g) to the Registrant's Annual Report of Form 10-K for
the year ended December 31, 1992 filed with the
Commission.)
10(h) Letter Agreement dated August 7, 1995 by and among the
Registrant, Donald Sparks, Stanley Ginsburg and Ira
Ingerman. (Incorporated by reference to Exhibit 6(a)) to
the Registrant's Quarterly Report of Form 10-QSB for the
quarter ended September 30, 1995 filed with the
Commission.)
10(i) Lease for Premises located at 8125 Troon Circle,
Austell, GA 30001 (Incorporated by reference to Exhibit
10(i) to the Issuer's Annual Report on Form 10-K for
the year ended December 31, 1993 filed with the Commission).
10(j) Letter Amendment dated January 22, 1996 to Amended
Employment Agreement with Robert B. Ginsburg ___
10(k) Letter Amendment dated January 22, 1996 to Amended
Employment Agreement with Alan I. Goldberg ___
21 Subsidiaries of the Issuer (Incorporated by reference
to Exhibit 21 to the Issuer's Annual Report on Form 10-K
for the year ended December 31, 1993 filed with the
Commission).
23 Consent of Coopers & Lybrand
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Issuer during the quarter ended
December 31, 1994.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
MARLTON TECHNOLOGIES, INC.
By: /s/ Robert B. Ginsburg
---------------------------------
President
By: /s/ E. D. Costantini, Jr.
---------------------------------
Chief Financial Officer
Dated: March 28, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
- --------- ----- ----
/s/ Fred Cohen Chairman of the March 25, 1996
---------------------------- Board of Directors
(Fred Cohen)
/s/ Seymour Hernes Director March 25, 1996
---------------------------
(Seymour Hernes)
/s/ Robert B. Ginsburg Director March 25, 1996
---------------------------
(Robert B. Ginsburg)
/s/ Alan I. Goldberg Director March 25, 1996
---------------------------
(Alan I. Goldberg)
/s/ William F. Hamilton Director March 25, 1996
---------------------------
(William F. Hamilton)
17
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
and Shareholders
Marlton Technologies, Inc.:
We have audited the consolidated financial statements of Marlton Technologies,
Inc. and subsidiaries as listed item 13(a) of this Form 10-KSB. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Marlton
Technologies, Inc. and subsidiaries as of December 31, 1995 and 1994 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company
changed its method of accounting for income taxes in 1993.
/s/ Coopers & Lybrand L.L.P.
--------------------------------------
COOPERS & LYBRAND L.L.P.
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 25, 1996
18
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
------------------ ------------------ -------------------
<S> <C> <C> <C>
Net sales $ 27,671,763 $ 24,613,216 $ 19,172,222
Cost of sales 19,693,655 17,756,727 13,698,674
------------------ ------------------ -------------------
Gross profit 7,978,108 6,856,489 5,473,548
------------------ ------------------ -------------------
Expenses:
Selling 4,732,884 3,925,188 3,430,518
Administrative and general 2,506,201 2,405,332 2,235,656
------------------ ------------------ -------------------
7,239,085 6,330,520 5,666,174
------------------ ------------------ -------------------
Operating profit (loss) 739,023 525,969 (192,626)
------------------ ------------------ -------------------
Other income (expense):
Interest income 109,446 28,512 101,000
Interest expense (Note 4) (142,860) (151,168) (184,580)
Gain from insurance settlement (Note 3) - 250,000 -
Other, net 9,205 21,481 55,588
------------------ ------------------ -------------------
(24,209) 148,825 (27,992)
------------------ ------------------ -------------------
Income (loss) before income taxes,
cumulative effect of accounting change
and extraordinary item 714,814 674,794 (220,618)
Provision (benefit) for income taxes (Note 14) (538,000) 188,000 (88,000)
------------------ ------------------ -------------------
Income (loss) before extraordinary item and
cumulative effect of accounting change 1,252,814 486,794 (132,618)
Extraordinary item:
Loss related to debt retirement, net of income
tax benefit of $64,000 (Note 2) - - 96,000
------------------ ------------------ -------------------
Income (loss) before cumulative effect
of accounting change 1,252,814 486,794 (228,618)
Cumulative effect of change in accounting for
income taxes (Note 1) - - 1,500,000
------------------ ------------------ -------------------
Net income $ 1,252,814 $ 486,794 $ 1,271,382
================== ================== ===================
Income (loss) per common share (Note 1):
Primary and fully diluted:
Before extraordinary item and cumulative effect
of accounting change $ .32 $ .13 $ (.03)
Extraordinary item - - (.03)
Cumulative effect of accounting change - - .39
------------------ ------------------ -------------------
Net income per common share $ .32 $ .13 $ .33
================== ================== ===================
</TABLE>
See notes to consolidated financial statements.
19
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
------------
<TABLE>
<CAPTION>
ASSETS 1995 1994
---------------- -----------------
<S> <C> <C>
Current:
Cash and cash equivalents $ 1,028,606 $ 1,469,175
Accounts receivable, net of allowance
of $132,000 and $86,000, respectively 4,444,597 4,185,935
Inventory (Note 6) 2,422,494 2,275,266
Prepaids and other current assets 575,719 882,174
Deferred income taxes 657,000 191,000
---------------- -----------------
Total current assets 9,128,416 9,003,550
Property and equipment, net of accumulated
depreciation and amortization (Note 7) 2,412,342 2,346,306
Goodwill, net of accumulated amortization of $595,478
and $464,358, respectively 3,101,616 2,898,764
Deferred income taxes 1,792,000 1,354,000
Other assets, net of accumulated amortization
of $644,720 and $463,451, respectively (Note 8) 473,519 542,091
---------------- -----------------
Total assets $ 16,607,893 $ 16,144,711
=============== ===============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt (Note 10) $ 524,586 $ 796,515
Accounts payable 1,542,433 1,700,404
Accrued expenses and other (Note 9) 3,232,494 3,929,753
---------------- -----------------
Total current liabilities 5,299,513 6,426,672
Long-term debt, net of current portion 991,894 691,676
---------------- -----------------
Total liabilities 6,291,407 7,118,348
---------------- -----------------
Commitments and contingencies (Note 11)
Stockholders' equity:
Common stock, $.10 par - shares authorized
10,000,000; 3,937,534 and 3,900,225 issued, respectively 393,754 390,023
Additional paid-in capital 20,171,051 20,137,473
Accumulated deficit ( 10,136,642) ( 11,389,456)
---------------- -----------------
10,428,163 9,138,040
Less cost of 5,000 treasury shares 111,677 111,677
---------------- -----------------
Total stockholders' equity 10,316,486 9,026,363
---------------- -----------------
Total liabilities and stockholders' equity $ 16,607,893 $ 16,144,711
=============== ===============
</TABLE>
See notes to consolidated financial statements.
20
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
Common Stock Additional
Shares Issued Treasury Paid-in Accumulated
Issued Amount Amount Capital Deficit
<S> <C> <C> <C>
Balance, December 31, 1992 3,516,492 351,649 $ (111,677) $ 19,477,063 $ (13,147,632)
Additional shares issued 318,000 31,800 - 605,700 -
Net income - - - - 1,271,382
------------ --------- ------------ ------------- --------------
Balance, December 31, 1993 3,834,492 383,449 (111,677) 20,082,763 (11,876,250)
Additional shares issued 65,733 6,574 54,710 -
Net income - - - - 486,794
------------ --------- ------------ ------------- --------------
Balance, December 31, 1994 3,900,225 390,023 (111,677) 20,137,473 (11,389,456)
Additional shares issued 37,309 3,731 - 33,578 -
Net income - - - - 1,252,814
------------ --------- ------------ ------------- --------------
Balance, December 31, 1995 3,937,534 $393,754 $(111,677) $20,171,051 $(10,136,642)
============ ======== ========== =========== =============
</TABLE>
21
<PAGE>
MARLTON TECHNOLOGIES, INC. and SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the years ended December 31, 1995, 1994 and 1993
<TABLE>
<CAPTION>
1995 1994 1993
-------------- ---------------- ---------------
<S> <C> <C> <C>
Cash flows provided (expended) through operating activities:
Net income $ 1,252,814 $ 486,794 $ 1,271,382
Adjustments to reconcile net income to cash provided
(expended) through operating activities:
Cumulative effect of change in accounting for income taxes - - (1,500,000)
Depreciation and amortization 1,110,712 982,173 742,010
(Increase) decrease in deferred taxes (604,000) 107,000 (152,000)
Minority interest in profit (loss) of EDSI 44,256 (16,837) (24,360)
Other operating items - 66,900 -
Change in assets and liabilities, net of effects of acquisitions:
(Increase) in accounts receivable, net (258,662) (1,086,240) (1,114,115)
(Increase) in inventory (147,228) (283,056) (843,333)
(Increase) decrease in prepaids and other assets 175,408 (288,659) (154,737)
Increase (decrease) in accounts payable and
accrued expenses and other (817,924) 2,213,611 1,224,114
-------------- ---------------- ---------------
Net cash provided (expended) through operating activities 755,379 2,181,686 (551,039)
-------------- ---------------- ---------------
Cash flows provided (expended) through investing activities:
Net cash proceeds from sale of note - - 494,870
Cash provided by escrow deposit - - 637,500
Cash paid to acquire Sparks Exhibits companies,
net of cash received - (38,102) (22,500)
Capital expenditures (890,265) (1,050,050) (597,826)
Acquisition of intangible assets (50,095) - (224,703)
-------------- ---------------- ---------------
Net cash provided (expended) through investing activities (940,360) (1,088,152) 287,341
-------------- ---------------- ---------------
Cash flows provided (expended) through financing activities:
Proceeds from issuance of long-term debt 583,523 500,000 500,000
Principal payments on long-term debt (510,493) (513,802) (368,582)
Payments against notes payable, Sellers (328,618) - -
Net increase (decrease) in revolving credit line - (495,000) 375,000
Proceeds from stock issuance - 61,284 -
-------------- ---------------- ---------------
Net cash provided (expended) through financing activities (255,586) (447,518) 506,418
-------------- ---------------- ---------------
Increase (decrease) in cash and cash equivalents (440,569) 646,016 242,720
Cash and cash equivalents - beginning of year 1,469,175 823,159 580,439
-------------- ---------------- ---------------
Cash and cash equivalents - end of year $ 1,028,606 $ 1,469,175 $ 823,159
</TABLE>
See notes to consolidated financial statements.
22
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
1. Summary of Accounting Policies:
Basis of Presentation:
The consolidated financial statements include the accounts of Marlton
Technologies, Inc., its wholly-owned subsidiaries and majority owned
subsidiary (the "Company"). All intercompany accounts and transactions have
been eliminated.
In January, 1988, the Company sold the net assets of its then existing
operating subsidiaries and through August 7, 1990, had limited
revenue-producing activity. Activity included in the consolidated statements
of operations consists primarily of the design, manufacture, sale and
servicing of sophisticated custom and portable trade show exhibits and museum
interiors by Sparks Exhibits Corp. ("Sparks") and subsidiaries (see Note 2),
as well as the manufacturing and distribution of panelized portable exhibits.
Property and Equipment:
Property and equipment are stated at cost. Depreciation is provided on
the straight-line method over the estimated useful lives of the respective
assets ranging primarily from 3 to 10 years. Assets and accumulated
depreciation accounts are reduced for the sale or other disposition of
property and the resulting gain or loss is included in income.
Inventory:
Inventory is stated at the lower of cost (first-in, first-out) or
market and includes all direct and indirect manufacturing costs associated
with a specific job.
Goodwill and Other Intangible Assets
The excess of cost over the fair value of net assets acquired
(goodwill) is being amortized on a straight-line basis over a period of
principally 30 years. Customer lists, which are recorded at cost, are being
amortized on a straight-line basis over their estimated useful lives of 5 to
15 years and are included as components of Other Assets.
The Company's policy is to record an impairment loss against goodwill
and other intangibles in the period when it is determined that the carrying
amount of the net assets may not be recoverable. This determination includes
evaluation of factors such as current market value, future asset utilization,
business climate and future cash flows expected to result from the use of the
net assets.
Revenue Recognition:
Revenues on trade show exhibit sales are recognized on the completed
contract method. Revenues on permanent exhibit installations, which are
generally 6 months or longer in duration, are recognized on the percentage of
completion method. Progress billings are generally made throughout the
production process. Progress billings which are unpaid at the balance sheet
date are not recognized in the financial statements as accounts receivable.
Progress billings which have been collected on or before the balance sheet
date are classified as Customer Deposits and are included as components of
Accrued Expenses and other.
23
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
1. Summary of Accounting Policies, continued:
Estimates and Assumptions:
The preparation of financial statements in conformity with generally
accepted accounting principles requires Company management to make estimates
and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results may differ from those estimates.
Income Per Common Share:
Income per common share is based on the weighted average number of
common shares outstanding during the period, adjusted for common equivalent
shares when the effect is not anti-dilutive. Income per share of common
stock, assuming full dilution, is the same as primary earnings per share for
all reported periods.
The weighted average number of common shares outstanding used in
calculating both primary and fully-diluted earnings per share was 3,935,700
during 1995, 3,880,548 during 1994 and 3,847,733 during 1993.
Cash and Cash Equivalents:
For purposes of the statements of cash flows, the Company considers all
investments with a maturity of three months or less at the time of their
purchase to be cash equivalents. Temporary cash investments comprise
principally short-term government funds.
Concentration of Credit Risk:
The Company's financial instruments that are exposed to concentrations
of credit risk consist primarily of cash and cash equivalents and trade
accounts receivable. The Company places its cash and temporary cash
investments with high credit quality institutions.
The Company's accounts receivable are with customers throughout the
United States. The Company performs ongoing credit evaluations of its
customers' financial condition and generally requires progress payments which
mitigates its loss exposure.
Fair Value of Financial Instruments
Financial instruments consist of cash and cash equivalents and
long-term debt. The recorded values of cash and cash equivalents approximate
their fair value due to the short maturity of these instruments. The fair
value of long-term debt is estimated based on current interest rates offered
to the Company for similar remaining maturities. The recorded value of this
financial instrument approximates its fair value at December 31, 1995 and
1994.
24
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
1. Summary of Accounting Policies, continued:
Income Taxes:
Effective January 1, 1993, the Company adopted the provisions of
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires the asset and liability method of
accounting for income taxes rather than the deferred method previously used.
The asset and liability approach requires the recognition of deferred tax
assets and liabilities for the expected future tax consequences of temporary
differences between the carrying amounts and the tax bases of assets and
liabilities. The cumulative effect of this accounting change for periods
prior to January 1, 1993, was to increase net income by $1,500,000 or $.39
per share (see Note 14). The cumulative effect relates to the recognition of
the Company's tax loss and credit carryforwards, net of an estimated
valuation allowance.
Financial Accounting Standards Not Yet Adopted
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets to Be Disposed Of," for fiscal years
beginning after December 15, 1995. This statement requires that certain
assets be reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable through
future cash flows. The Company is evaluating the provisions of SFAS No. 121
and does not anticipate adoption to have a material effect on its financial
position or results of operations.
In October 1995, the FASB issued SFAS No. 123, "Accounting for
Stock-Based Compensation," for transactions entered into in fiscal years
beginning after December 15, 1995. SFAS No. 123 allows companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based upon fair value. The Company anticipates
continuing to account for stock-based compensation in accordance with APB No.
25 and therefore the adoption of SFAS 123 will not have an impact on the
Company's financial position or results of operations.
2. Acquisitions:
Sparks Exhibits Corp.:
On August 7, 1990, the Company acquired (the "Acquisition") all of the
issued and outstanding stock of Arrow Exhibits, Inc. ("Arrow") and
transferred the operations to its newly formed subsidiary, Sparks Exhibits
Corp. ("Sparks"). Sparks custom designs and manufactures sophisticated trade
show exhibits, displays, architectural and museum interiors, graphics and
signage and sells portable displays for clients in industry, government,
consumer electronics, athletic goods, healthcare, telecommunications and
other specialized fields.
25
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
2. Acquisitions (continued)
Total consideration paid for the Acquisition, including related
expenses was $3,710,419, of which $1,885,419 was paid in cash, $1,000,000 was
paid by delivery of a convertible subordinated note of the Company
(convertible into common stock of the Company at a conversion price of $2 per
share commencing August 7, 1992) and the remainder was paid by assignment to
the shareholders of Arrow (the "Sellers") of an aggregate of $825,000 of the
subordinated note then held by the Company.
During August 1993, at the request of the Company, the Sellers agreed
to surrender notes aggregating $637,500 and related interest payments at 9%,
and the right to convert the principal amount into an aggregate of 318,750
shares of the Company's common stock, in exchange for the immediate issuance
of 318,000 shares of the Company's common stock and a cash payment of
$160,000. The Company recognized an extraordinary charge of $96,000, net of
an income tax benefit of $64,000, as a result of the retirement of this debt.
The Agreement provided for certain additional consideration to be paid
to the Sellers based on defined operating results of Sparks through December
31, 1994. On August 7, 1995 the Company paid $478,618 for additional
consideration obligations that were previously recognized through December
31, 1994. The final cumulative contingent earn-out obligation to the Sellers
of $333,972 payable on August 7, 1995 was satisfied by a cash payment of
$50,095 and issuance of three two-year notes totaling $283,877 and bearing
interest at 8%, payable quarterly and convertible to the Company's common
stock at $1.375 per share. All additional consideration paid to the Sellers
has been recorded as goodwill.
Sparks Exhibits, Inc./Sparks Exhibits, Ltd./Sparks Exhibits
Incorporated:
During 1991 and 1992, Sparks through its wholly-owned subsidiaries,
Sparks Exhibits, Inc., Sparks Exhibits, Ltd. and Sparks Exhibits
Incorporated, acquired various assets from custom trade exhibit businesses in
Atlanta, Georgia, San Diego, California and Melbourne, Florida, respectively.
Acquired assets included customer lists, contract rights, machinery and
equipment and other assets. The total purchase price in connection with the
three acquisitions was approximately $1,125,000. As part of the acquisitions,
employment agreements were executed between respective subsidiaries and
certain key employees, including options to acquire up to 150,000 shares of
the Company's common stock at prices ranging from $2.00 to $3.00 per share
and vesting periods which expire during 1997.
Expose Display Systems, Inc.:
During July 1993, the Company and Abex Display Systems, Inc. ("ADSI"),
entered into an agreement to organize a new California corporation, Expose
Display Systems, Inc. ("EDSI"). The Company acquired 51% of EDSI with ADSI
acquiring the balance. EDSI granted to ADSI exclusive worldwide distribution
and marketing rights for "Expose", a portable display product, through
December 1995 with a 5 year extension contingent upon ADSI meeting defined
sales levels.
The minority interest in the profits and (losses) of EDSI of $42,256,
($16,837) and ($24,360), respectively, represent ADSI's 49% share in the
results of operations for 1995, 1994 and from August 1 through December 31,
1993. EDSI sales, net of intercompany revenues, for 1995 and 1994 and the
five month period in 1993 approximated $2,128,000, $1,660,000 and $400,000,
respectively. Included in deposits and advances at December 31, 1995 and
1994, respectively are approximately $72,000 and $279,000 of advances made by
EDSI to ADSI.
26
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
3. Insurance Settlement:
During November 1993 the Company experienced a fire at its Melbourne,
Florida location which destroyed approximately one-third of the facility
including the administrative and design offices, as well as a portion of the
exhibit storage area. During July 1994, a severe storm damaged the Company's
Philadelphia, Pennsylvania location including portions of the manufacturing
and exhibit storage areas. Both losses were covered by insurance. The Company
recognized a gain of $250,000 from settlement of the claims. The gain is net
of write-offs of property and equipment of $66,900 and other costs
approximating $1,083,000.
4. Cash Flows Information:
Cash paid for interest in 1995, 1994 and 1993 amounted to $140,206,
$143,631, and $181,442, respectively.
Cash paid for income taxes in 1995, 1994 and 1993 amounted to $9,509,
$25,000 and $27,817, respectively.
During 1995 the following noncash investing and financing transactions
took place:
* The Company issued to three Sellers, two-year notes amounting to
$283,877 and bearing interest at 8% and payable quarterly in lieu of
the final payment for additional consideration in connection with the
1990 acquisition of Sparks Exhibits Corp. The notes are convertible
into the Company's common stock at $1.375 per share.
* The Company issued 37,309 shares of its common stock to certain
directors and the Company's 401(k) plan in lieu of payments for
director fees and defined contributions under the Company's employment
benefit plan (see Note 13).
During 1994 the following noncash investing and financing transactions
took place:
* The Company accrued $150,000 of additional consideration in connection
with the 1990 acquisition of Sparks Exhibits Corp.
During 1993 the following noncash investing and financing transactions
took place:
* The Sellers surrendered notes aggregating $637,500 in exchange for
318,000 shares of the CompanyOs common stock and a cash payment of
$160,000. In addition, the Sellers converted $127,500 of accrued
contingent payments and $201,118 of one year notes due August 7, 1993
into notes due August 7, 1995.
* The Company accrued $38,102 of additional consideration in connection
with the 1990 acquisition of Sparks Exhibits Corp.
27
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
5. Note Receivable:
In connection with the sale of a former wholly-owned subsidiary in
1988, the Company received a subordinated note receivable. In connection with
the Acquisition in August 1990 (see Note 2), a portion of the note receivable
was assigned to the Sellers of Sparks. The Company sold the subordinated
notes (including notes previously assigned and guaranteed by the Company to
the Sellers) for a cash payment of $1,051,620, paid to the Company on January
13, 1993. $556,750 of the cash payment was paid by the Company to the Sellers
satisfying the note assignment and the remaining $494,870 was retained by the
Company.
6. Inventory:
Inventory at December 31, 1995 and 1994 consists of the following:
1995 1994
---------- ------------
Raw materials $ 510,774 $ 590,627
Work in process 1,911,720 1,684,639
--------- ---------
$2,422,494 $2,275,266
========== ==========
7. Property and Equipment:
Property and equipment at December 31, 1995 and 1994 consists of the
following:
1995 1994
---------- ----------
Manufacturing equipment and vehicles $ 867,769 $ 644,575
Office equipment and fixtures 1,388,650 1,117,241
Leasehold improvements 1,091,399 866,169
Showroom and rental exhibits 1,347,013 1,187,238
Other 158,131 173,380
---------- ----------
4,852,962 3,988,603
Less accumulated depreciation
and amortization 2,440,620 1,642,297
---------- ----------
$2,412,342 $2,346,306
========== ==========
8. Other Assets:
Other assets include costs incurred for certain intangible assets,
principally customer lists, acquired in connection with the acquisition of
custom trade exhibit businesses from 1990 through 1993. Amounts capitalized
include amounts assigned to such assets by the Company at the date of the
respective acquisitions and required contingent payments set forth in related
purchase agreements. Such costs are amortized over the estimated life of the
assets on a straight-line basis. Amortization expense related to other assets
amounted to $181,269, $184,082 and $150,745 for the three years in the period
ended December 31, 1995. Also included in Other assets as of December 31,
1995 are deposits relating to certain facility leases and the long-term
portion of prepaid expenses.
28
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
9. Accrued Expenses and Other:
Accrued expenses and other at December 31, 1995 and 1994 consist of the
following:
1995 1994
---- ----
Accrued compensation $ 608,541 $ 446,691
Customer deposits 856,735 2,013,869
Accrued consideration - Sparks' sellers - 150,000
Accrued payroll, sales and business taxes 715,302 600,301
Accrued insurance costs 232,472 100,907
Other 819,444 617,985
---------- ----------
$3,232,494 $3,929,753
========== ==========
10. Debt Obligations:
Notes Payable:
The Company, through its wholly-owned subsidiary Sparks, maintains a
$1,250,000 revolving credit facility with a bank which expires on June 30,
1997 unless renewed by the issuing bank. Borrowings under the revolving loan
bear interest at the bank's prime lending rate (8.5% at December 31, 1995).
No amounts were outstanding under the facility at December 31, 1995 and
1994.
The revolving credit facility and the Company's primary term loans are
collateralized by substantially all of the assets of Sparks and its
subsidiaries and Sparks Exhibits Holding Corporation ("Holding"). Both the
revolving credit facility and term loan agreements place certain
restrictions as to the use of Sparks' funds for payment of dividends, loans,
or the acquisition of stock or assets of unrelated entities without prior
bank approval. Additionally, the agreements contain certain compensating
balance requirements and financial covenants. The most restrictive financial
covenant requires the Company to maintain a current ratio, as defined, of
not less than 1.2 to 1. At December 31, 1995 this ratio, as defined, was
approximately 1.6 to 1.
29
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
10. Debt Obligations, continued
Long-Term Debt:
Long-term debt at December 31, 1995 and 1994 consists of the following:
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
Term loans payable, banks:
Interest at the prime lending rate plus .25% (8.75%
at December 31, 1995); principal payable in equal
monthly amounts of $9,167 through July 2000 $504,167 -
8.6% interest; principal payable in monthly amounts
of $10,417 through May 1998 312,500 $437,500
6.85% interest; principal payable in monthly amounts
of $10,417 through February 1997 with a
final payment in March 1997 162,666 287,609
8.2% interest; principal payable in monthly
amounts of $12,500 through May 1996 with a final
payment of $28,973 in June 1996 91,474 241,473
Notes payable, Sellers (subordinated to all bank indebtedness):
Additional consideration, interest payable quarterly at
the prime lending rate repaid August 1995 - 328,618
Notes payable, Sellers (subordinated to all bank indebtedness):
Additional consideration, interest payable quarterly at
8% principal due August 7, 1997, and convertible
into the Company's common stock at $1.375 per share 283,877 -
Note payable, ICI:
Interest payable annually at 6.85%, principal payable
in remaining annual payments of $28,726
and $34,551 through July 1997 63,277 86,391
Note payable, TSS:
Interest payable quarterly at 7%,
principal payable in annual payments of
$26,560 through December 1997 53,120 79,680
Other 45,399 26,920
----------- -----------
1,516,480 1,448,191
Less current portion 524,586 796,515
----------- -----------
$ 991,894 $ 691,676
=========== ===========
</TABLE>
30
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
10. Debt Obligations, continued:
Included in interest expense is $27,175, $40,817 and $37,289 related to
interest on notes payable to the Sellers for the three years in the period
ended December 31, 1995.
Aggregate long-term debt maturities for the next five years are as
follows:
Years Ended December 31, Amount
------------------------ ------
1996 $ 524,586
1997 628,522
1998 180,693
1999 114,023
2000 68,656
----------
$1,516,480
==========
11. Commitments and Contingencies:
The Company operates in leased office and warehouse facilities. Lease
terms range from monthly commitments up to 105 months with options to renew
at varying times. Certain lease agreements require the Company to pay
supplemental costs of utilities, taxes, insurance and maintenance.
As of December 31, 1995, future minimum lease commitments under
noncancelable operating leases are as follows:
Year ended December 31,
1996 $1,087,988
1997 953,755
1998 805,046
1999 577,425
2000 594,696
2001 and thereafter 2,297,574
---- ----------
Total minimum lease commitments $6,316,483
==========
Rental expense, exclusive of supplemental costs, for each of the three
years in the period ended December 31, 1995 was $1,111,374, $956,681 and
$1,022,855, respectively (including approximately $73,000 in 1993 to a
related party).
The Company has employment contracts with certain officers and
employees with remaining terms from approximately one to five years, which
provide for minimum annual remuneration ranging from $30,000 to $145,000,
plus additional compensation based upon operating results of the Company. In
addition, pursuant to their employment contracts, two officers may convert
certain deferred compensation and certain accrued bonuses into common stock.
As of December 31, 1995, there were 357,144 shares reserved for conversion
at $1.60 per share.
31
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
11. Commitments, continued:
Future minimum payments under employment contracts are as follows:
Year ended December 31,
1996 $ 431,750
1997 394,500
1998 245,000
1999 245,000
2000 245,000
----------
$1,561,250
==========
12. Stock Options:
The Company has qualified and nonqualified stock option plans. No
charges against operations have been made in the years presented as a result
of the issuance of stock options.
In August 1990, the Company adopted the 1990 Incentive Plan which
provides for the granting of Incentive Stock Options ("ISO") and a 1990
Nonstatutory Option Plan ("NSO") (collectively, "the 1990 Plans"). The 1990
Plans (as amended in June 1992) provide for the granting of options to
employees to purchase up to 950,000 shares of common stock. Options are
exercisable at a price not less than the market value of the shares at the
date of grant in the case of ISO's, and 85% of the market value of the
shares in the case of NSO's.
In April 1984, the Company adopted the 1984 Incentive Stock Option
Plan. The plan provides for the granting of Incentive Stock Options to key
salaried employees to purchase a maximum of 100,000 common shares at prices
not less than the market value of the shares on the date the options are
granted.
The Company maintains a Nonqualified Stock Option Plan which provides
for the granting of options to employees, sales representatives, consultants
and others to purchase, for a period of five years, a maximum of 65,900
common shares at prices and terms determined by a committee appointed by the
Board of Directors. Options are granted at a price not less than 85% of the
market value of the shares at the date of the grant.
The Directors' and Consultants' Stock Option Plan provides for the
granting of options to purchase up to 73,600 common shares to directors and
consultants who are neither principal stockholders, nor receive salary
compensation. Prices are determined as in the Nonqualified Stock Option
Plan.
The 1992 Director Stock Plan, with a total of 100,000 authorized
shares, was amended in December 1994 to provide that in addition to stock
awards, stock options may be granted to Directors at a price not less than
market value on the date of the grant.
As an inducement for certain individuals to become employees of the
Company, stock options, as part of an employment agreement, are granted by
the Company. The quantity, price and vesting requirements vary with each
employment agreement; however, the Company has not granted options at a
price less than the market value of the shares at the date of grant.
32
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
12. Stock Options, continued
The following table reflects information as of December 31, 1995
related to stock options:
Shares
Available
Shares for
under Option Price Options Unissued
Option per Share Exercisable Options
------ ----------- ----------- ---------
1990 Plans 948,993 $1.60-$2.00 731,509 1,007
1984 Incentive Stock
Option Plan 87,652 $2.00 87,652 2,223
Nonqualified Stock
Option Plan 14,300 $2.20-$3.00 6,435 17,300
Directors' and Consultants'
Stock Option Plan 19,000 $2.45 19,000 0
1992 Directors' Plan 50,000 $2.00 20,000 33,804
Other Options 85,517 $2.00-$3.00 44,917 -
---------- ------ ------
1,205,462 909,513 54,334
========== ======= ======
Changes in options outstanding are as follows:
1995 1994
---- ----
Shares under option at beginning of year 1,173,245 1,136,518
Options granted 90,000 100,000
Options expired (57,783) (40,273)
Options exercised 0 (23,000)
--------- ---------
Shares under option at end of year 1,205,462 1,173,245
========= =========
Shares available for unissued options 54,334 142,296
====== =======
13. Employee Benefit Plans:
The Company maintains a defined contribution savings plan under Section
401(k) of the Internal Revenue Code which provides retirement benefits to
certain employees of the Company and its wholly-owned subsidiaries who meet
certain age and length of service requirements. The Company's contribution
to the Plan is determined by management. Charges to income with respect to
this Plan were approximately $32,000, $22,000 and $16,000 in 1995, 1994 and
1993, respectively.
33
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
14. Income Taxes:
The components of the provision (benefit) for income taxes were as
follows:
1995 1994 1993
---- ---- ----
Current:
Federal $ 27,000 $ 21,000 --
State 39,000 60,000 --
Deferred:
Federal (590,000) 155,000 $ (88,000)
State (14,000) (48,000) --
------- ------- ---------
$(538,000) $ 188,000 $ (88,000)
========= ========= =========
A reconciliation of the Federal statutory rate to the Company's
effective tax rate before the extraordinary credit is as follows:
1995 1994 1993
---- ---- ----
Federal statutory rate 34% 34% (34%)
State income tax, net of Federal
income tax effect 2 1 --
Non-deductible expenses 7 7 19
Losses not tax effected -- 1 4
Valuation allowance (114) (13) (33)
Other, net (4) (2) 4
---- ---- ----
(75%) 28% (40%)
===== ==== ====
The net deferred tax asset at December 31, 1995 and 1994 comprises the
following:
1995 1994
---- ----
Net operating loss carryforwards $2,798,000 $3,194,000
General business credits 1,856,000 1,856,000
Employee benefits and compensation 166,000 179,000
Other, net 64,000 (15,000)
---------- ---------
4,884,000 5,214,000
Valuation allowances (2,735,000) (3,669,000)
---------- ---------
Net deferred tax asset $2,149,000 $1,545,000
========== ==========
34
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
14. Income Taxes (continued):
The decrease in the valuation allowance in 1995, 1994 and 1993 resulted
primarily from the release of valuation allowance based on the reevaluation
of the realizability of future benefits of net operating loss carryforwards.
Realization of the net deferred tax asset is dependent upon generating
sufficient taxable income prior to expiration of the net operating loss
carryfowards (NOL's). Although realization is not assured, management
believes it is more likely than not that the recorded net deferred tax asset
will be realized.
As of December 31, 1995, the Company's federal NOL's of approximately
$8,228,000, expire as follows:
Expiration Date Amount
--------------- ------
2001 $2,149,000
2002 2,072,000
2003 3,133,000
2004 116,000
2005 232,000
2008 526,000
----------
$8,228,000
==========
General business credit carryforwards of $1,856,000 expire primarily in
1998.
15. Subsequent Event:
The Company and Tsubasa System Company, Ltd., a diversified
manufacturing and marketing company entered into a distribution and license
agreement in 1995 and jointly formed a Japanese corporation, Sparks Japan,
90% owned by Tsubasa; 10% owned by the Company, to market portable exhibits
in Japan. In an amendment to that Agreement in January 1996, the Company
agreed to eliminate certain future payments from Sparks Japan and to issue
Tsubasa 500,000 shares of unregistered common stock of the Company, in
exchange for $3,000,000 from Tsubasa.
Sparks Japan is obligated to purchase its portable exhibits from the
Company's majority owned subsidiary, EDSI. Sparks Japan is expected to open
its Tokyo showroom during March 1996. The Company is required to provide
technical, operational and marketing support to the Japanese operation. The
agreement provides that funds received by the Company are to be used for
operating activities and to acquire companies, products and services within
the exhibit industry. The funds cannot be used to retire certain debts or
pay bonuses, incentives, commissions, etc. to officers, directors or
shareholders of the Company, without the prior approval of Tsubasa.
In the event Sparks Japan does not achieve certain sales levels by
December 31, 1998 and the Company's common stock is trading at less than
$3.00 per share at such time, if requested by Tsubasa, the Company will, at
its option, repurchase the Tsubasa shares at $3.00 per share or make a cash
payment to Tsubasa, per share, equal to the difference between the December
31, 1998 trading price and $3.00.
35
<PAGE>
NOTES TO FINANCIAL STATEMENTS
---------------------
15. Subsequent Event (continued)
The Company expects to recognize a gain of approximately $1,000,000 on
this transaction during the first quarter of 1996.
36
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Marlton Technologies, Inc. on Form S-8 (File No. 33-3647) of our report dated
March 25, 1996, which includes an explanatory paragraph relating to the Company
changing its method of accounting for income taxes effective January 1, 1993, on
our audits of the consolidated financial statements of Marlton Technologies,
Inc. as of December 31, 1995 and 1994 and for the three years in the period
ended December 31, 1995 which report is included in this Form 10-KSB.
COOPERS & LYBRAND, LLP
2400 Eleven Penn Center
Philadelphia, Pennsylvania
March 28, 1996
37
<PAGE>
EXHIBIT 10(a)
AGREEMENT TO AMENDMENT
THE
INTERNATIONAL DISTRIBUTION AND TECHNOLOGY AGREEMENT
This Amendment Agreement is entered into this 22nd day of January, 1996
by and between:
I. PARTIES:
1. MARLTON TECHNOLOGIES, INC., ("Marlton") 2828 Charter Road, Suite 101,
Philadelphia, Pennsylvania 19154 (hereinafter referred to as "Marlton" and
together with its affiliates; SPARKS EXHIBITS HOLDING CORPORATION, INC. ("Sparks
Holding") and SPARKS EXHIBITS CORPORATION, ("Spark's Exhibits"), collectively as
("The Marlton Group"); and,
2. TSUBASA SYSTEM COMPANY LTD., 2-25-14 Kameido Koto-Ku, Tokyo 136, Japan
(hereinafter referred to as "Tsubasa") and, together with its affiliates
SEKITEI AMERICA CORP. ("SAC") and SPARKS EXHIBITS JAPAN ("SJ"), collectively as
(the "Tsubasa Group").
II. PURPOSES
WHEREAS: The Parties have heretofore entered into an international
Distribution and Technology Agreemment, dated March 31, 1995 (hereinafter
referred to as the "Original Agreement") a copy of which is attached hereto and
made a part hereof; and,
WHEREAS: The original Agreement provided for the formation of a
Japanese Corporation, "SPARKS EXHIBITS JAPAN" (SJ) which is owned jointly by
Tsubasa and Marlton; and,
WHEREAS: The Parties now desire to amend the original Agreement on the
terms and conditions hereinafter set forth.
NOW THEREFORE, for good and adequate consideration, receipt of which is
hereby acknowledged, the Parties agree as follows:
III. PROVISIONS:
1. MARLTON CORPORATE STOCK ISSUANCE:
1.01 Marlton shall, immediately after the execution of this Amendment
Agreement, issue to Tsubasa five hundred thousand (500,000) shares of the
Marlton Common Stock, (hereinafter referred to as the "Marlton Shares").
1.02 Marlton represents that:
1.02.01 There is only one class of Marlton corporate stock
issued and outstanding which is Common Stock.
<PAGE>
1.02.02 All shares of Marlton Common Stock have equal voting
rights.
1.02.03 As of the date of this Amendment Agreement there are
ten million (l0,000,000) shares of Marlton Common Stock authorized.
1.02.04 As of the date of this Amendment Agreement there are
issued and outstanding three million, nlne hundred and thirty two
thousand, five hundred and thirty four (3,932,534) shares of Marlton
Common Stock.
1.03 Tsubasa represents and understands that:
1.03.01 Tsubasa is acquiring the Marlton Shares for investment
and not with a view to the distribution thereof within the meaning of
the Securities Act of 1933, as amended ("Securities Act").
1.03.02 None of the Marlton Shares have been registered under
the Securities Act, and the Marlton Shares cannot be sold unless they
are subsequently registered under the Securities Act or unless an
exemption from such registration is available.
1.03.03 Tsubasa's principal place of business is located in
Japan.
1.03.04 Tsubasa has had an opportunity to review public
disclosures of Marlton and to ask questions and receive answers from
Marlton regarding Marlton and the terms and conditions of the
Marlton Shares.
1.03.05 Tsubasa has such knowledge and experience in
financial and business matters that it is capable of evaluating the
merits and risks of its investment in the Marlton Shares.
2. Guaranty of future value of Marlton Shares.
2.01 If by December 31, 1998, SJ is not operating at an annualized
sales level of at least seven million five hundred thousand dollars
(US$7,500,000) and the Market-Value of a share of Marlton Common Stack is less
than three dollars (US$3.00) per share, then Marlton, within thirty (30) days of
receiving written notification by Tsubasa, shall at Marlton's option, either
repurchase the Marlton Shares at a price of one million five hundred thousand
dollars (US$1,500,000) or pay to Tsubasa the difference between the aggregate
Market Value of the Marlton Shares and the sum of one million five hundred
thousand dollars (US$1,500,000).
2.02 Such written notice shall be received by Marlton no later than
January 31, 1999.
2
<PAGE>
2.03 "Market Value" shall mean the average closing price of a share of
Marlton Common Stock on its primary stock exchange over the month of December
1998.
3. Appointment of Observer to the Board of Dirctors.
3.01 Within thirty (30) days of the purchase of the Marlton Shares by
Tsubasa, Marlton shall designate an individual nominated by Tsubasa as a
nonvoting observer at meetings of the Marlton Board of Directors until December
31, 1998.
3.02 Marlton shall notify such observer thirty (30) days in advance of
each such meeting.
3.03 Such observer shall not participate in the decision making
function of the Board and shall have no voting rights.
3.04 A copy of the minutes of each Board meeting shall be made
available to such observer no more than ten (10) days after each meeting.
3.05 The observer shall have no obligation to attend the meetings of
the Board and shall only attend such meeting if it is convenient for the
observer to do so.
4. Use of Funds.
4.01 The funds derived from the sale of the Marlton Shares to Tsubasa
shall be used to enhance and strengthen the financial and operational strength
of Marlton, with the particular primary goal of obtaining control and/or
ownership of key companies, products and services in the exhibit business.
4.02 No part of such funds shall be used to retire debts owed to
existing officers, directors or shareholders of Marlton and no part of such
funds shall be used to pay bonuses, incentives, commissions or rewards to
existing officers, directors or shareholders of Marlton.
5. The following Amendments to the Original Agreement shall become effective
upon receipt by Marlton of the Paragraph 7 payment.
5.01 Amendment of Original Agreement Section 5.03 Annual Sale
Discounts.
Section 5.03 of the Original Agreement shall be deleted in its entirety
and replaced with the following provisions:
5.03.01 The "Expose" and "Exposure" portable exhibit frames, cases etc.
marketed by the Marlton Group sha11 be sold to SJ exclusively in the Territory
by the Marlton Group at a flat sales discount on all SJ purchases of fifty
percent (50%) off the manufacturers Suggested List Price.
3
<PAGE>
5.03.02 SJ shall also pay all duties, freight, insurance and other
charges as well as Japanese taxes, related to its purchases.
5.02 Amendment of Original Agreement Section 6.02 Compensation -
Sparks Holding.
Section 6.02 of the Original Agreement, shall be deleted in its
entirety and replaced with the following provisions:
"Effective upon the date of the Paragraph 7 payment by Tsubasa, SJ
shall not be obligated now or at anytime in the future to pay to Sparks Holding
any royalty whatsoever, nor shall SJ be obligated to pay any annual volume
royalty whatsoever so long as this International Distribution and Technology
Agreement is in effect."
5.03 Amendment of original Agreement Section 7.01 - Term.
Section 7.01 of the Original Agreement, shall be deleted in its
entirety and replaced with the following provisions:
"This Agreement shall be for a period commencing on the date of this
Agreement and ending on December 31, 1998 and shall be extended automatically
each year thereafter for one year periods, so long as Tsubasa meets the minimum
sales level provided in section 5.02.1 hereinabove."
6. Marlton Management.
6.01 Marlton shall use its best efforts to make its Chief Executive
Officer/President and Executive Officer reasonably available for consultation by
telephone, including without limitation, quarterly business status and strategy
conferences and interim consultations rgarding matters relevant to the
business of SJ and the exhibit industry, at least through December 31, 1998.
6.02 Marlton shall use its best efforts to make such officers
reasonably available for meetings in the United States with the Tsubasa
executives, at least through December 31, 1998.
6.03 Marlton represents that it has employment agreements with such
officers which extend at least through December 31, 1998.
7. Transfer of funds. In consideration of Marlton entering into the
Amendment Agreement, Tsubasa shall wire transfer three million dollars
(US$3,000,000) to Marlton which funds shall be received by Marlton no later
than January 31, 1996.
8. All other provisions of the Original Agreement shall remain in full
force and effect:
4
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Amendment
Agreement, effective as of the date first above written.
MARLTON TECHNOLOGIES, INC. TSUBASA SYSTEM CO. LTD.
By: ROBERT B. GINSBURG By: KENICHI MICHIKAWA
---------------------- --------------------------
Robert B. Ginsburg Kenichi Michikawa
Chief Executive Officer President
SPARKS EXHIBITS HOLDING SPARKS EXHIBITS JAPAN
CORPORATION By: TSUBASA SYSTEM CO. LTD.
By: ALAN I. GOLDBERG By: KENICHI MICHIKAWA
---------------------- --------------------------
Alan I. Goldberg Kenichi Michikawa
President President
SPARKS EXHIBITS CORP. SEKITEI AMERICA CORP.
By: ROBERT B. GINSBURG By: TAKEKUNI HANEDA
---------------------- --------------------------
Robert B. Ginsburg Takekuni Haneda
Chief Executive Officer President
5
<PAGE>
EXHIBIT 10(j)
January 22, 1996
Mr. Robert B. Ginsburg
Marlton Technologies, Inc.
2828 Charter Road
Philadelphia, PA 19154
Dear Bob:
Confirming prior actions of the Board of Directors regarding your
Amended Employment Agreement dated December 11, 1992 between you and Marlton,
On June 27, 1995 the Compensation Committee of the Board of Directors
recommended and approved an increase in your annual base salary to
$145,000.
On December 22, 1995, the Board of Directors recommended and approved,
effective January 22, 1996, that the dates in Paragraphs 2(a) and 3
(regarding term of employment) and in Paragraph 6 (regarding right to
obtain common stock) of the Amended Employment Agreement be extended
in each case from December 31, 1997 to December 31, 2000.
In addition, the address in Paragraph 4 and 13 of the Amended
Employment Agreement shall be changed from 111 Presidential Boulevard, Suite
101, Bala Cynwyd, PA 19004 to 2828 Charter Road, Suite 101, Philadelphia, PA
19154.
Except as amended by the above, the Amended Employment Agreement shall
remain in full force and effect in accordance with its terms.
Very truly yours,
Marlton Technologies, Inc.
Agreed to:
/s/Robert B. Ginsburg /s/ Fred Cohen
---------------------------- ----------------------------------------
Robert B. Ginsburg Fred Cohen, Chairman
<PAGE>
Exhibit 10(k)
January 22, 1996
Mr. Alan I. Goldberg
Marlton Technologies, Inc.
2828 Charter Road
Philadelphia, PA 19154
Dear Alan:
Confirming prior actions of the Board of Directors regarding your
Amended Employment Agreement dated December 11, 1992 between you and Marlton,
On June 27, 1995 the Compensation Committee of the Board of Directors
recommended and approved an increase in your annual base salary to
$100,000.
On December 22, 1995, the Board of Directors recommended and approved,
effective January 22, 1996, that the dates in Paragraphs 2(a) and 3
(regarding term of employment) and in Paragraph 6 (regarding right to
obtain common stock) of the Amended Employment Agreement be extended
in each case from December 31, 1997 to December 31, 2000.
In addition, the address in Paragraph 4 and 13 of the Amended
Employment Agreement shall be changed from 111 Presidential Boulevard, Suite
101, Bala Cynwyd, PA 19004 to 2828 Charter Road, Suite 101, Philadelphia, PA
19154, and your title shall be changed from Director of Acquisitions to
Executive Officer.
Except as amended by the above, the Amended Employment Agreement shall
remain in full force and effect in accordance with its terms.
Very truly yours,
Marlton Technologies, Inc.
Agreed to:
/s/ Alan I. Goldberg /s/ Fred Cohen
----------------------- -------------------------------------
Alan I. Goldberg Fred Cohen, Chairman
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